ECB could adjust policy more gradually in pursuit of greener portfolio – Schnabel
Member of the European Central Bank’s (ECB) Executive Board Isabel Schnabel laid out on Monday several ways in which the ECB could move from market neutrality to market efficiency in an effort to fight climate change. One of the proposals would include stopping purchases of bonds issued by polluting sectors altogether, which could “eliminate incentives for firms in carbon-intensive sectors to reduce their greenhouse gas emissions.”
Another option would see the ECB adjust its monetary policy operations more gradually in line with sustainability considerations. However, Schnabel argues tilting toward the green bond market could “adversely affect market liquidity or unduly influence the price discovery mechanism” in private sector asset purchases. In the public sector, this policy faces challenges such as a “negligible share of public sector issuance in the euro area” of green bonds, a limited scope for tilting strategies, and a lack of “comparable climate-related data for sovereign issuers.” Schabel pointed out that, despite these challenges, “it is imperative that central banks ambitiously explore the scope for adjusting their monetary policy operations to take climate change into account within the limits of their legal mandate.”
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